Credit Suisse is the first European firm to unveil its Q1 results for 2015. US investment banks were generally bullish after their FICC divisions bounced back and life returned to the FX and rates markets. The Swiss bank can be seen as a bellwether for the European banking market and it doesn't look that good. Here’s what you need to know about its investment bank in the first quarter.
Credit Suisse’s investment banking revenues were up by 5% year on year to CHF3.6bn on the back of stronger performance in its trading divisions. Relative to Goldman Sachs (up 14%) and Morgan Stanley (17%), this seems small beer. And yet, rather than the traditional contraction, like Goldman Credit Suisse has been expanding in the first quarter. It added 400 people to its investment bank in the three months to March. The same time last year, Credit Suisse reduced investment banking headcount by 300 people.
It’s quite possible that headcount is being bumped up in Credit Suisse’s investment bank by the need to hire in risk and compliance. However, as we pointed out previously Credit Suisse is hiring in certain front office areas – senior hires have been brought in within equities trading and emerging markets fixed income trading.
It’s a little early in the year to talk about compensation for 2015, but pay at Credit Suisse's investment bank was down very slightly in the first quarter. In the first three months of 2015, CS bankers earned CHF78.3k ($81.5k), down from CHF79.2k for the same period of 2014. Goldman Sachs put aside $130k per head for its own staff in the first three months of this year.
Aside from the upturn in FICC, M&A was cited by most US investment banks as a positive in the first quarter. Credit Suisse is missing out and this looks like bad news for other European banks. Revenues were down 26% in its advisory function year-on-year. CS attributes this to a lower market share, to slower activity in the sponsors sector, and to under-performance in the red-hot healthcare sector. It does insist that the “pipeline remains healthy”, however.
Year-on-year Credit Suisse’s FICC division increased revenues by 9% to CHF1.7bn. Like its rivals, it said this was down to increased volatility in macro products.
However, Credit Suisse's performance looks disappointing compared to US banks. Goldman increased FICC revenues by 10%, Morgan Stanley by 16% and J.P. Morgan by 20%.
Credit Suisse appears to be keeping its traders’ risk taking in check across most business areas, however. Value-at-risk (VaR) was largely flat quarter on quarter within most business areas, with only interest rates increasing average VaR significantly from CHF10 to CHF15 – a 50% increase. Both Goldman Sachs and J.P. Morgan ramped up VaR in the first quarter.
Revenues in Credit Suisse’s DCM business slumped by 29% year on year to CHF332m – the biggest decrease of any business area. Credit Suisse puts this down to weak performance in its securitised products division and a reduction in DCM activity in the US, a good Q1 in 2014, making for a difficult comparison.
Equities trading revenues at Credit Suisse were up by 11% year on year, the strongest results of any business area. It said much of this was down to equity derivatives, with growth in Asia Pacific particularly buoyant as well as “fee-based products distributed by Private Banking and Wealth Management”.